by: Dr Banu Ekren, Dr Ismail Abushaikha and Dr Hendrik Reefke, Cranfield School of Management
In the backdrop of the COVID-19 pandemic and the accelerated wave of digitisation, recent statistics highlight a substantial rise in eCommerce activities (Keenan, 2023). Lockdown measures, coupled with an increased emphasis on digital platforms, have propelled online interactions to the forefront of customer-business engagement. That digital revolution and increased eCommerce have fundamentally reshaped consumer behaviour and preferences, catapulting eCommerce and online shopping to the forefront (DHL, 2023; PwC Survey, 2022, 2023). Customers are increasingly attracted to the convenience of browsing through a diverse range of products, making purchases from the comfort of their homes, and having items delivered right to their doorsteps (WEF, 2021).
The surge in eCommerce has given rise to a wave of inventive warehousing and fulfilment solutions, with on-demand warehousing (ODW) leading the agenda (Rana, 2020). ODW operates within the realms of a sharing economy and a marketplace model, featuring transactional pricing (Hass, 2019; Siebrecht et al., 2016). This model allows eCommerce businesses to access warehousing solutions as and when needed, without making a long-term commitment, through a pay-as-you-go system. Further, they provide an opportunity to create a dynamic distribution strategy, by scaling up and accommodating unexpected demand and changing market conditions smoothly. ODW could work well for small to mid-sized eCommerce retailers, where the business could swiftly establish multiple distribution points with minimal long-term commitments, each capable of handling as few as 50 pallets (Siebrecht et al., 2016). According to a December 2022 survey conducted by Ware2Go on 1,000 US small to mid-sized businesses, 67% of respondents agree that there will be a shift away from large, single business warehouses to smaller, distributed shared warehousing models (FoF Report, 2023). Additionally, the survey revealed that numerous rapidly expanding enterprises regard ODW as a valuable strategy for enhancing their fulfilment operations. This is attributed to ODW's capability to scale alongside the demand experienced by retailers, without the need for acquiring extra assets. Retailers can thus leverage cost-effective solutions without bearing upfront fixed expenses. This endows them with agility while sidestepping capital costs, despite potential variations in per-unit charges (Siebrecht et al., 2016).
On Demand Warehousing Provides Sustainable Retailing Solutions
Beyond embodying the sharing economy principles inherent in ODW, this model aligns with sustainable practices by encouraging the efficient utilisation of existing resources, thereby diminishing overall environmental impacts (RLI, 2018). The ODW model achieves this by minimising empty storage space and optimising warehouse usage without the need for constructing new facilities. This approach holds the potential to foster greater sustainability and environmentally friendly solutions within the retail and logistics sectors. Furthermore, the optimisation of underutilised resources in ODW not only contributes to environmental benefits but also translates into cost savings for both warehouse owners and eCommerce businesses (RLI, 2018; Hass, 2019). Warehouse owners stand to generate additional revenue by monetising their unused space, while utiliser businesses can avail themselves of a cost-effective and flexible warehousing solution in closer proximity to their customers. These accrued cost savings have the potential to enhance profitability and create opportunities for reinvestment, thereby contributing to economic growth and the overall well-being of the economy.
ODW platform services typically negotiate with multiple warehouses on behalf of their users to build a nationwide fulfilment network to reduce shipping costs and streamline fulfilment so that businesses of all sizes can reach customers within 1 to 2-days and create efficiencies in their fulfilment process (Ware2Go, 2023).
Advantages of On-Demand Warehousing
ODW offers several advantages as outlined in Express Roadways (2023):
1. Faster Shipping
The advent of ODW addresses the growing demand for expedited shipping in the competitive landscape of eCommerce. For that, ODW strategically positions warehouses nationwide, minimising time in transit for final mile deliveries.
2. Lower Fixed Costs
In terms of financial flexibility, ODW offers lower fixed costs by shifting expenditures to variable costs. This reduction in risk exposure boosts the bottom line, enabling businesses to invest in more inventory, marketing, or staff. Additionally, the streamlined storage search and expansion of storage options provided by ODW allow for quick deployment without startup costs and the ability to add warehouse locations easily. Warehouse owners/operators can maximise their space, leasing it out to others and gaining additional profit by reaching fulfilment capacity.
3. Larger Warehousing Network
Storage search is streamlined and expanded by ODW. For instance, space providers can be selected from a list of candidates who meet the specifications and scope of the business. Businesses can add warehouse locations quickly and easily. With ODW, retailers can stock their items in several warehouses across countries.
4. Maximised Warehouse Capacity and Utilisation
ODW presents a unique revenue opportunity for warehouse owners or operators. By leasing out the excess storage space, those businesses can ensure that their warehouse is always stocked. Maximising space to gain additional profit by reaching fulfilment capacity.
5. Higher Supply Chain Flexibility
An adaptable fulfilment solution offered by ODW offers flexibility in response to seasonal demand and significant market disruptions. Retailers can avoid elevated expenses during the off-season by only paying for the space they actively use. This allows retailers to intensify their sales and marketing endeavours during peak seasons without concerns about fixed overhead costs.
The ability for your business to create on-demand synergies and share cost-intensive facilities such as warehouses and workforce using digital platforms, is an interesting opportunity which deserves further exploration. To learn more about current relevant projects, get in touch with our Warehousing team at the Centre for Logistics, Procurement and Supply Chain Management at Cranfield University.
References
DHL, 2023. Strategies for Managing Customer Expectations, Small Business Advise: Growing Your SME, retrieved on November, 16th, 2023: https://www.dhl.com/discover/en-global/small-business-advice/growing-your-business/managing-customer-expectations.
Express Roadways, 2023. Benefits of On-Demand Warehousing For Business, retrieved on November, 8th, 2023: https://expressroadways.in/blog/benefits-of-on-demand-warehousing-for-business/
FoF Report, 2023. The 2023 Future of Fulfilment Report, retrieved on November, 8th, 2023: https://ware2go.co/market-research/2023-future-of-fulfillment/.
Hass, M., 2019. On-Demand Warehousing 101: What Is On-Demand Warehousing?, Flexe Industry Insights & Resources: Articles, retrieved on July, 21st, 2023: https://www.flexe.com/articles/on-demand-warehousing-101-what-is-on-demand-warehousing.
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PwC Survey, 2023. June 2023 Global Consumer Insights Pulse Survey, retrieved on November, 16th, 2023: https://www.pwc.com/gx/en/industries/consumer-markets/consumer-insights-survey.html.
Rana, K. 2020. LogisticsInsider: E-commerce Enabling On-demand Warehousing to Take Flight, retrieved on November, 16th, 2023: https://www.logisticsinsider.in/e-commerce-enabling-on-demand-warehousing-to-take-flight/
RLI, 2018. How the ‘sharing economy’ is revolutionising warehousing, Retail Logistics International, retrieved on July, 21st, 2023: https://www.retaillogisticsinternational.com/how-the-sharing-economy-is-revolutionising-warehousing/.
Siebrecht, K.,Sinha, A., Johanson, S., Rajeevan, V., 2016. Dynamic Warehousing Strategies: On‐demand warehousing for ecommerce, Tauber Institute White Paper, retrieved on November, 21st, 2023: https://tauber.umich.edu/sites/default/files/pdfs/dynamic_warehousing_strategies.pdf.
Ware2Go, 2023. On Demand Warehousing: 10 Benefits for Your Business, Retrieved on November, 15th: https://ware2go.co/articles/how-businesses-can-leverage-on-demand-warehousing-fulfillment-to-drive-growth/#:~:text=On demand warehousing services negotiate,efficiencies in their fulfillment process.
WEF, 2021. The pandemic has changed consumer behaviour forever - and online shopping looks set to stay, retrieved on November, 8th, 2023: https://www.weforum.org/agenda/2021/07/global-consumer-behaviour-trends-online-shopping/.
